Opportunity vs risk

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: Volatility, uncertainty, herd mentality, fear, corrections, opportunities, risk and returns -- some of the most commonly used words, heard from the portfolio managers over the past month. The markets have oscillated, equity - the shunned golden boy has now returned in favour, debt and fixed income still hold their predictable places, gold is shining again, private equity knocking on investor's doors and real estate- well it's still around.

According to a private banking investment advisor, "The herd mentality has set into the markets again. People so far weary of investing at the 8,000-levels, yet now at the 17,000-levels the equity space is more exciting then ever. Gold, too, is gaining certain prominence especially with the weakening dollar and the jump over the $1,020 level. However, at this time one has to be cautious as well, as the market is like an erratic animal. When the markets are moving in the green, people are over-enthusiastic. Therefore, if one is holding equity, profit-booking is a good idea, and one can invest more towards fixed deposits (FDs), monthly income plans (MIPs) or gold."

Correction blues

The market at its current levels has a PE of 23-24. In 2007, when the markets reached the 21,000-level, it had a PE of 26. So the fact is, the current markets are already over-stretched. So will the correction happen? Yes. That seems to be the unanimous answer amongst market players. However, probing further to find out when or at what level and to what extent it will happen, leave most hard pressed for answers. With this being the case that the markets will undergo a correction, and while they remain so volatile, two rather interesting options are thrown up for investors to make the most of this period.

One of the obvious factors, that every investor should look into is profit booking. However, unlike profit-booking in a way that may disrupt the overall portfolio, private bankers opine, "One should use the correction phase of the market to drop certain profit making stocks from their portfolio at a high. Dropping A-list or long-term oriented large-cap stocks is not necessary, but the mid-cap and small-cap companies which one has, can be sold. The nonfront-liner stocks should be booked and the money made can then be re-invested into more long-term stocks or fixed deposits, gold or even real estate."